Sovereign funds in spotlight as US banks come calling

EXTRA FUNDING: Citigroup and Merrill are looking for more cash to offset losses from subprime crisis. (Getty Images)

The sovereign funds of Kuwait and other Gulf states were in the spotlight on Monday as Citigroup sought extra emergency funding and its fellow US bank Merrill Lynch was said to want more cash too.

The moves came as one newspaper report raised questions over whether previously agreed Chinese funding for Citigroup may fall through.

Citigroup, the largest US bank by assets, is looking for more funds to help it through losses from the subprime crisis after securing $7.5 billion from the Abu Dhabi Investment Authority in November, a source familiar with the situation told Reuters in New York.

Merrill is seeking about $4 billion from the Kuwait Investment Authority (KIA) and others as it faces as much as $15 billion in credit market losses, the UK's Financial Times newspaper reported.

The newspaper said a Merrill deal could be announced as soon as midweek, and that other investors could come from Europe.

A public relations official for the KIA, which manages funds for Kuwait, referred calls to managing director Bader Al-Sa'ad, who could not be reached in his office or on his mobile phone.

In December, Merrill shored up its capital base by as much as $7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers.

Citi, which said it could write down about $11 billion of repackaged debt, was seeking as much as $14 billion from investors including its largest individual shareholder Saudi Prince Alwaleed bin Talal, the KIA and China Development Bank, newspapers reported.

Alwaleed's spokeswoman Heba Fatani did not return calls for comment. P.J. Shoucair, executive director of international investments at his Kingdom Holding Company, declined to comment.

In a separate development on Monday, the Wall Street Journal reported that Citi's plan to sell a $2 billion stake to state-owned China Development Bank may be in jeopardy because of Chinese government opposition.

A Citigroup spokesman in Hong Kong, Richard Tesvich, declined to comment, while a spokesman for state-owned China Development Bank could not immediately be reached for comment.

Analysts expect Citigroup to report a fourth-quarter loss on Tuesday and markets will focus on the bank's plans to raise new capital and cut more jobs.

Investors in the Gulf, flush with cash from oil prices near $100 a barrel, have said they are looking to invest in the US to take advantage of cheaper asset prices as the dust settles on a crisis triggered by mortgage defaults.

Dubai state funds, including DIFC Investment, which bought into Deutsche Bank last year, and Istithmar, an investor in Standard Chartered, have said they see the credit crisis as an opportunity. The $60 billion Qatar Investment Authority (QIA) has the same view.

The KIA would have a similar attitude towards the troubles at Merrill and Citi, said Naser Al-Nafisi, general manager for Al-Joman Center for Economic Consultancy.

"They are now willing to benefit from the credit crisis in the US and Europe," Nafisi said.

None of the three funds returned calls for comment.

Unlike the secretive Abu Dhabi Investment Authority, which manages an estimated $650 billion in assets, the KIA invests regularly in the Kuwait stock market and local analysts have some idea of its strategy.

The KIA had at least $213 billion in assets at the end of March last year, according to official data. (Reuters)

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